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M&A in Japan Erim - 08 omslag Schaik :Erim omslag Schaik 15-09-2008 12:23 Pagina 1 B&T28304 - Erim Omslag van Schaik M&A IN JAPAN 141 DIMITRI VAN SCHAIK AN ANALYSIS OF MERGER WAVES AND HOSTILE TAKEOVERS The number of mergers between large companies has been low, and hostile takeover cases have been rare in post-war Japan. Since the 1990s, however, total M&A activity has been increasing in number of cases and in value. Coinciding with this trend, hostile tender M&A in Japan offer attempts are also more frequent. Previous research argues that the low level of SCHAIKDIMITRI VAN - M&A in Japan merger and hostile takeover activity is caused by three institutional elements within the An Analysis of Merger Waves and Hostile Takeovers Japanese society: the main bank system, the horizontal keiretsu, and the specific Japanese culture. With reference to hostile takeovers we show that it is important to make a distinction between greenmail and hostile tender offers. We build an institutional model that emphasizes the necessity to consider institutional elements from a historical and context- specific perspective. Our model indicates that the vertical keiretsu and the trade association have an important impact on hostile tender offers in Japan. Regarding mergers, we examine whether the main bank system influences merger activity of companies. By using two event studies we show that involvement of a main ERIM bank does not create shareholder wealth in mergers. The main bank appears to act in order to protect its own interests as creditor. Design & layout: B&T Ontwerp en advies (www.b-en-t.nl) Print: Haveka (www.haveka.nl) Design & layout: B&T Ontwerp en advies (www.b-en-t.nl) ERIM The Erasmus Research Institute of Management (ERIM) is the Research School (Onder - zoek school)in the field of management of the Erasmus University Rotterdam. The founding participants of ERIM are Rotterdam School of Management, Erasmus University, and the Erasmus School of Econo mics. ERIM was founded in1999 and is officially accredited by the Royal Netherlands Academy of Arts and Sciences (KNAW). The research undertaken by ERIM is focussed on the management of the firm in its environment, its intra- and interfirm relations, and its busi ness processes in their interdependent connections. The objective of ERIM is to carry out first rate research in management, and to offer an advanced doctoral pro gramme inResearch in Management. Within ERIM, over three hundred senior researchers and PhD candidates are active in the different research programmes. From a variety of acade mic backgrounds and expertises, the ERIM commu nity is united in striving for excellence and working at the fore front of creating new business knowledge. Erasmus Research Institute of ManagementErasmus Research - ERIM PhD Series Research in Management Rotterdam School of Management Tel. +31 10 408 11 82 ERIM Erasmus University Fax +31 10 408 96 40 Erasmus School of Economics E-mail [email protected] P.O. Box 1738, 3000 DR Rotterdam Internet www.erim.eur.nl The Netherlands M&A in Japan An analysis of merger waves and hostile takeovers 1 2 M&A in Japan An analysis of merger waves and hostile takeovers M&A in Japan Een analyse van fusiegolven en vijandige overnames Thesis to obtain the degree of Doctor from the Erasmus University Rotterdam by command of the rector magnificus Prof.dr. S.W.J. Lamberts and in accordance with the decision of the Doctorate Board. The public defense shall be held on Thursday, 30 October 2008 at 13.30 hours by Dimitri van Schaik born in Sliedrecht, the Netherlands. 3 Doctoral Committee Promotores: Prof.dr. J. Spronk Prof.dr. J.P.M. Groenewegen Other members: Prof.dr. G.A. van der Knaap Prof.dr. H.T.J. Smit Prof.dr. J.A. Stam Copromotor: Dr. O.W. Steenbeek Erasmus Research Institute of Management (ERIM) RSM Erasmus University / Erasmus School of Economics Erasmus University Rotterdam Internet: http://www.erim.eur.nl ERIM Electronic Series Portal: http://hdl.handle.net/1765/1 ERIM PhD Series in Research in Management, No. 141 ISBN 978-90-5892-169-7 © 2008, Dimitri van Schaik All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the author. 4 Contents List of Figures iv List of Tables iv Preface vii 1 Introduction, Findings and Overview 1 1-1 Research question 3 1-2 Findings 5 1-3 Overview 7 2M&AactivityinJapan 11 2-1 Pre-war mergers 12 2-1-1 TSE listed company data 14 2-2 Post-war mergers 19 2-2-1 First merger wave 21 2-2-2 Latter half 1980s 25 2-2-3 Second merger wave 25 2-3 Hostile takeovers 32 2-4 Hostile tender offer attempts 35 2-5 Conclusion 40 3 Informal and formal institutions 43 3-1 Informal institutions 44 3-1-1 Religion and tradition 44 3-1-2 Constitution of Seventeen Articles 46 3-1-3 Ie system 48 3-2 Formal institutions 50 3-2-1 Pre-war political development and financial markets 50 3-2-2 Post-war political development and financial markets 53 3-3 Formal institutions related to M&A 56 3-3-1 Company Law 56 3-3-2 Antimonopoly Act 61 3-3-3 Securities Exchange Law 62 3-3-4 Other laws related to M&A 62 3-4 Summary 63 i 5 4 Ownership and corporate governance 65 4-1 Economic characteristics 66 4-1-1 Economic development 66 4-1-2 Administrative guidance (gyǀsei shidǀ)71 4-2 Pre-war financing and ownership 74 4-2-1 Pre-war zaibatsu 77 4-2-2 Pre-war corporate governance 78 4-3 Post-war financing and ownership 79 4-3-1 Post-war financing decision 82 4-3-2 Post-war keiretsu 83 4-3-3 Post-war corporate governance 84 4-3-4 Recent changes in corporate governance and ownership 86 4-4 Summary 89 5 Mitsubishi groups 91 5-1 Mitsubishi zaibatsu 92 5-2 Mitsubishi horizontal keiretsu 96 5-2-1 Data and Methodology 96 5-3 Mitsubishi vertical keiretsu 102 5-4 Conclusions 104 6 Institutional model for M&A 105 6-1 Framework of institutional model 106 6-2 Informal and formal institutions 109 6-3 Governance structure and M&A activity 111 6-3-1 Transaction cost economics 112 6-4 Actors 114 6-5 Institutional change 119 6-6 Concluding remarks 121 7 Institutional approach to hostile takeovers 123 7-1 Interpretations from previous research 124 7-1-1 Horizontal keiretsu 124 7-1-2 Culture 125 7-1-3 Transaction cost economics and vertical keiretsu 126 7-2 Corporate groups according to our model 127 7-2-1 Trust 128 7-2-2 Horizontal keiretsu 129 7-2-3 Vertical keiretsu 132 7-2-4 Trade associations 134 7-3 Hostile takeovers according to our model 136 7-3-1 Hostile tender offer attempts 138 7-3-2 Generated hypotheses 141 7-4 Concluding remarks 141 ii 6 8 Introduction to M&A 143 8-1 M&A terminology 144 8-1-1 Types of M&A 144 8-1-2 Mergers 146 8-1-3 Tender offers 148 8-1-3-1 Defensive measures 148 8-2 Merger motives 149 8-3 Merger waves 152 8-3-1 Drivers for merger waves 152 8-3-2 Merger waves in the United States 153 8-4 Conclusion 156 9 Merger activity 159 9-1 M&A activity over time 160 9-2 Previous research 163 9-2-1 Main bank monitoring 163 9-2-2 Previous event studies 164 9-2-3 Profitability drivers 166 9-3 Shareholder wealth of bidder companies 169 9-3-1 Data-set 169 9-3-2 Results 174 9-3-3 Conclusions 186 9-4 Shareholder wealth of the bidder and target companies 187 9-4-1 Data 188 9-4-2 Results 194 9-4-3 Conclusions 205 9-5 Conclusion 205 10 Summary and conclusions 211 10-1 Summary 211 10-2 Conclusions 216 Dutch summary 221 References 225 About the author 237 ERIM PhD Series 239 iii 7 List of Figures 2-1 Mergers in the period 1906-1937 15 2-2 Mergers in the period 1950-1997 20 2-3 Mergers between large companies in the period 1957-1978 24 2-4 M&A cases in the period 1985-2006 30 4-1 GNP growth in the period 1886-1942 68 4-2 GDP growth and inflation rate in the period 1952-2004 70 4-3 Financing as percentage of GNP in the period 1903-1944 76 4-4a Nikkei 225 daily stock average price index 80 4-4b Share ownership in 1945, 1949-53 80 4-5a Stockownership 1950-75 (%) 81 4-5b Stockownership 1950-75 (shares) 81 4-6 Loan/assets-ratio of manufacturing companies in period 1960-2006 87 5-1 Loans from Mitsubishi Bank and Mitsubishi Trust Bank in 1975 98 5-2 Mitsubishi Keiretsu Diamond 100 6-1 Institutional model for M&A 107 6-2 Simple contracting schema 114 7-1 Ownership transformation of Mitsubishi groups 131 8-1 M&A types 145 8-2 Mergers in the United States in the period 1895-1930 153 8-3 M&A announcements in the United States in the period 1963-1998 154 9-1 CAR results of previous event studies on Japanese mergers 165 9-2 Inter-industry vs. intra-industry deals 174 9-3a CARs Japanese bidders 175 9-3b Excess trading volume Japanese bidders 175 9-4 Merger activity and Nikkei Index in the period 1981-2003 189 List of Tables 2-1 Sample companies by mergers and zaibatsu in the period 1906-1937 16 2-2 Mergers by size of bidder and target in the period 1906-1937 17 2-3 Mergers by industrial sector in the period 1916-1933 18 2-4 Mergers by size in sub-periods of 1953-1976 21 2-5 Mergers by industrial sector in sub-periods of 1953-1976 22 2-6 Merger activity by number of cases and by amount in the period 1984-2006 26 2-7 Comparison of merger activity by industrial sector between 1984-1990 and 1991-1997 27 2-8 Mergers by industrial sector in the period 1991-1997 28 2-9 Mergers by merger type in the period 1977-1983 29 2-10 M&A activity categorized by in-group and out-group cases in the period 1990-2006 31 2-11 Greenmail cases in the 1970s and 1980s 33 iv 8 2-12 Hostile tender offers in Japan 35 3-1 Important laws and regulations
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